9911796707
TMI Blog2022 (8) TMI 1549X X X X Extracts X X X X X X X X Extracts X X X X ..... ich are part of paper book filed by the assessee. Thus, in our considered view there is not fixed place of PE of NRRs. AO alleged that there is agency PE of NRRI in India on the basis of availing services of reinsurance brokers. During the subject assessment years, the assessee has remitted reinsurance premium through non-resident brokers outside India. In order to attract agency PE, the Revenue has to establish that person act on behalf of NRRI in India and such person is economically and legally dependent on the NRRI. In the present case, reinsurance brokers act in their independent capacity and they are not dependent agency of the assessee as well as non-resident insurers. They do not conclude any contract for NRRI and thus, we are of the considered view that there cannot be said to constitute business connection for agency PE for foreign reinsurers in India Revenue has also not placed any material on record to demonstrate that reinsurance brokers constitute agency PE for NRRI under DTAA. Therefore, in our considered view, foreign reinsurers do not have PE or business connection in India under relevant DTAA or the I.T. Act, 1961. Therefore, payments are not chargeable to tax in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more or less raised common grounds for all assessment years and challenged deletion of additions made by the Assessing Officer towards reinsurance premium ceded to non-resident reinsurance companies u/s 40(a)(i) of the Act. Since, only common issue in all appeals filed by the revenue is on disallowance of reinsurance premium u/s 40(a)(i) of the Act, we deem it appropriate not to reproduce grounds of appeal filed by the Revenue. 3. The brief facts of the case are that the assessee is public sector general insurance company (fully owned by Government of India) carrying on general insurance business in India. The assessee is governed by the Insurance Act, 1938 and the Insurance Regulatory and Development Authority (IRDA) Act, 1999. The business of general insurance is to cover various properties against various covered perils. The policies are issued by various branches/divisional offices for which they collect premium from the insuring public. The reinsurance is not given by one insurer to the other insurer on the basis of specific solicited action or otherwise, rather it is on the basis of framework of insurance business. As per the Insurance Regulatory and Development Authority of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business. The assessee further contended that re-insurance premium is a business profit assessable as business income in the hands of nonresident reinsurers. Further, in certain DTAA between Indian and contracting states there is a specific exclusion of reinsurance premium from the definition of business profits. In some cases, though there is no specific exclusion income of non-resident cannot be taxed in India, unless there is a permanent establishment in India and further the business of the non-residents are carried out from the place where the permanent establishment is there. In absence of any permanent establishment, the business profits cannot be taxed in India in terms of DTAA between India and respective countries. 6. The CIT(A), after considering relevant submissions of the assessee held that the business in relation to reinsurance premium and property is situated in India. Further, there is real and intimate relation between the business activities of the NRRIs situated outside India and activities in India. The NRRI will have no income if the assets situated in India are not insured. The NRRI have regular source of income from India and there is a continuity of relatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of NRRI is accrued and deemed to accrue in India. The Ld. AR further submitted that the income of non-resident reinsurer is not liable to tax in India u/s. 9(1)(i) of the Act, because in absence of any business connection in India income of the nonresident cannot be taxed u/s. 9 of the Act. The NRRI could not be hit by the deeming provisions of section 9(1)(i) of the Act, as clause (a) of sub-section (1) of section 9 provides that in the case of business of which all operations are not carried out in India, the income of the business deemed under the clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. If no operations of business are carried out in India, it follows that the income accruing or arising abroad through or from any business connection in India cannot be deemed to accrue or arise in India. In the present case, as per IRDAI regulations, none of the NRRIs should have a business presence in India either directly or indirectly. This is amply evidenced by the IRDAI letter to the CBDT dated 07.05.2008. Therefore in absence of any business connection, question of income deemed to accr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visional offices for which they collect premium from the insuring public. The premium received on such insurance policy belongs to the insurance company. Insurance is the business of covering risks. 8. Reinsurance business is not given by one insurer to the other insurer on the basis of any specific solicited Action or otherwise, rather it is on the basis of the frame work of Insurance business. 9. As per the Insurance Regulatory and Development Authority (IRDA) regulations an Indian insurance company is required to take as much risk on its own account as is possible having regard to its financial strength and volume of business. To the extent an insurance company is unable to retain the risk, that portion is reinsured with a reinsurance company (situated in India or overseas). In respect of risks accepted by it where the liability is likely to be higher than its capacity to pay, reinsurance arrangement is made in India with other companies and/or with companies abroad carrying on reinsurance business. Thus, the principle of reinsurance is to distribute the risks in such a manner that there is a global spread of risks thereby ensuring that in the event of a large loss, one individu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ination or reduction of risk by creation of a wider spread of exposure. Insurance of insured risk is called Reinsurance. 11. The transfer of risk and consequent remittance of premium to foreign insurers is not a commercial operation in a true sense but, a risk management operation with the sole purpose of ensuring entity's survival and continuity and also to avoid extreme swing in the operational results. In fact, by resorting to reinsurance operations, the insurer brings about stability in its bottom line. 12. Types of policies issued by the assessee is enclosed in Annexure 1 (page 1). 13. As per the Insurance Regulatory and Development Authority (IRDA) regulations an Indian insurance company is required to take as much risk on its own account as is possible having regard to its financial strength and volume of business. To the extent an insurance company does not want to retain the risk/unable to retain the risk, that portion is reinsured with a reinsurance company (situated in India or overseas). 14. In respect of risks accepted by an insurance company where the liability (on the happening of an event) is likely to be higher than its capacity to pay, reinsurance arrangement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain factors that are taken into consideration are Probable Maximum Loss for a particular risk, the sums insured for different types of risks, the capacity of the relevant insurer to bear the loss that may arise from any risk, etc. 22. Reinsurance contracts does not affect the relationship between the insured and the direct insurer for it is in his own capacity that the insurer picks up the risk which in turn is placed with the reinsurer. The cedant while accepting an insurance policy is not acting on behalf of the reinsurer. Similarly, the agreement entered between the insured and the insurer/cedant does not involve the reinsurer for it is a contract only between the cedant and the insured and cannot be mixed up with the contract which the cedant subsequently/simultaneously enters with the reinsurer. As the contracts are different which are distinct from each other, in the event of any reinsurer failing to honor the reinsurance contract, the insurer cannot escape from his liability to the direct insured. Conversely, the insured has no recourse against any reinsurer in the event of default of the insurer. In fact, the insured may not be aware of the existence of reinsurance as the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om each other, in the event of any reinsurer failing to honor the reinsurance contract, the insurer cannot escape from his liability to the direct insured i.e. the liability of the insurer to indemnify the insured is absolute and is not based on reimbursement by the reinsurer for the insurer (the cedant) while accepting an insurance policy is not acting on behalf of the reinsurer but in his own capacity. f. Conversely, the insured has no recourse against any reinsurer in the event of the default of the insurer. In fact, the insured may not be aware of the existence of reinsurance as the contract of reinsurance is between the insurer and the reinsurer and the insured is not privy to the contract and vice versa. g. Location of the assets to which the primary insurance policy relates to or where the insured perils takes place is not relevant in the contract of reinsurance as the contract of reinsurance is independent to the primary contract of insurance (which is between the insured and the Insurance Company. 27. Reinsurances are done in accordance with the provisions of the Insurance Act, 1938, the Insurance Regulatory and Development Authority (General Insurance - Reinsurance) Regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, a foreign reinsurer cannot carry on the reinsurance activities in India directly unless they have obtained a license from the IRDA. Admittedly none of the foreign reinsurance companies, neither have any presence or place of business in India (ither through representative offices/Branch Offices/subsidiaries) nor have license from IRDA to operate in India. b. Reinsurance is a contract of risk and neither of goods nor of services and hence does not require rendering of any service or delivery of goods. The NRR can take risks only based on his credit worthiness. The credit worthiness of the NRR depends upon his material worth/financial standing- neither of which is in India. Therefore, the income of the business accrues at the reinsurer's office outside India and he can have no liability to pay Indian income tax on the remittance of reinsurance premium. c. The ability to take risk is in a place outside India and any income arising out of such risk undertaken cannot be said to be arising out of a source in India. d. No activities of the NRR are in India as they are pricing risk/reinsuring outside India and therefore none of their activities are carried in India. e. The payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tside India the premium income accrues to the NRRs outside India and receivable outside India, as they have assumed the 'risk' from outside India. 38. The business of reinsurance is a business of accepting risk and hence cannot be brought to tax as Fees for Technical Service, but, only as business income. Hence, unless the underwriter/reinsurers carry any business operations in India, nothing can be brought to tax in India by virtue of Explanation 1 to Section 9(1)(i) of the Act. 39. The IRDA regulations also provide that a NRR cannot any insurance business in India. 40. As no activity of the NRR is done in India, he does not have any operations in India, the income of NRR does not accrue or arise or deemed to accrue or arise in India, the provisions of section 5(2) are not satisfied and hence the income is not chargeable to tax in India under the provisions of Act. Taxability of Reinsurance premium in the hands of the NRRs u/s 9 of the Act: 41. The Assessing Officer and the CIT(A) held that the income received by NRR is also deemed to have accrued or arisen in India u/s 9(1)(i) of the Act and that the NRR has a business connection in India on the ground that: (i) it has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll operations are not carried out in India, the income of the business deemed under the clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. If no operations of business are carried out in India, it follows that the income accruing or arising abroad through or from any business connection in India cannot be deemed to accrue or arise in India. In the present case: a. As per IRDAI regulations none of the NRRs should have a business presence in India either directly or indirectly. This is amply evidenced by the letter of the IRDAI to the CBDT dated 7 May 2008- copy enclosed in Annexure 10 (pages 14 to 17); b. It is also not the case of the income tax department that the NRRs have operations in India. Under the Double Taxation Avoidance Agreement (DTAA): 48. Sections 5, 9 and 90 of the Act if read in conjunction, it becomes clear that in the absence of a DTAA between India and another country, taxability of a non resident will be decided in accordance with section 5 and/ or section 9 of the Act and in case of a country with which India has a DTAA it will be decided as per the provisions of the spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been deducted on the payments made to the NRRs as per section 195 of the Act. 56. The Courts have held in many cases that where question of failure to deduct tax at source u/s 195 is to be decided, the basic question to be considered is whether the recipient situated overseas has rendered any service in India and in case, foreign company did not render any service in India, no income accrued or arose in India, and hence the question of deduction of tax at source u/s 195 will not arise. Thus, chargeability u/s 4 is the primary requisite for applicability of section 195. 57. The assessee submits that with a view of regulating remittances and collection of tax, the RBI used to insist upon No Objection Certificate (NOC) from the Income-tax department prior to sanction of any remittance. This procedure remained in vogue till 1997 gradually, the power were delegated by the Reserve Bank of India (RBI) to the banks and the CBDT informed RBI that the requirement of obtaining NOC would no more be insisted upon. The RBI was advised that it would be sufficient if, in substitution of NOC from Income-tax department, the remitter furnished to the concerned bank a certificate obtained from a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent assessee did not carry on any business operation in the taxable territories, his relationship does not amount to be an operation carried out by the assessee in India as contemplated by clause a of the explanation to sec. 9(1)(i) of the Income tax Act, 1961 and hence the income earned by the nonresident assessee could not be deemed to be incomes which had either accrued or arisen in India. 60. The Bombay High Court in the case of Salt and Industries Agencies Ltd., v. Commissioner of Income-tax (18 ITR 58) has held that the test to be applied in order to determine where the profits of a company accrue or arise is to find out where the actual business of the company is done which yields the profits which are sought to be taxed and where was the business done which made it possible for the managing agents to earn this commission. It was a case where the managing agents rendered certain services at Aden and they rendered certain services in Kutch, and according to him, to the extent that these services were rendered at Kandla in Kutch, the commission attributable to those services must be considered to have arisen or accrued at Kandla. The Court held that the work of the managing ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y commission earned by the assessee accrue or arise in the Cochin State inasmuch as the managing agency commission is computed on the basis of the freight earned by the managed company in the Cochin State have held that (a) the test is to find out where the business is actually done, i.e., where the services are performed, and (b) the right to managing agency commission arose and that the commission payable to the managing agents accrues at the place where the business is actually done, that is, where the services of the managing agents are performed. 64. The legal position with regard to payment made to NRRs who are residents of countries with whom India has entered into a DTAA may thus be summarized as follows: a. The provisions of section 4 and 5 of the Act are expressly made subject to the provisions of the Act which means that they are subject to the provisions of section 90 of the Act. By necessary implication they are subject to the terms of the DTAAs, if any, entered into by the Government of India; b. The income arising or accruing to a foreign company through or from any business connection in India which is deemed to arise or accrue in India, being part of the total inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee that no portion of payment is liable to tax, the question of application of section 195(2) does not arise because, as the section itself categorically provides that it comes in to play where the person responsible for paying any sum chargeable under this Act (other than salary to a non-resident) considers that whole of such sum would not be chargeable in the case of the recipient. It would thus follow that for invoking section 195(2) of the Act, the sum that is being paid to the non-resident should be 'chargeable under the provisions of this Act', i.e. whether fully or partly, i.e., the entire sum or the income hidden or embedded therein. 66. In the case of Swiss Re-Insurance Company Ltd v. DDIT (2015111-22-1TAT-MUM-INTL), the assessee, a company incorporated in Switzerland received income from providing reinsurance to various cedants in India. It had claimed the re-insurance premium as business income and further claimed that in absence of any Permanent Establishment (PE) in India the entire business income was not taxable in India. During assessment, the AO observed that the assessee through its Singapore Branch had entered into service agreement with SRSIPL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the UN Model DTAA formulators to include direct insurance and exclude reinsurance from the taxation of the state in which the premiums are collected. Article 5 (6) of the UN Model of the DTAA is as under: Notwithstanding the preceding provisions of this article, an insurance enterprise of a Contracting State shall, except in regard to re-insurance, be deemed to have a permanent establishment in the other Contracting State if it collects premiums in the territory of that other State or insures risks situated therein through a person other than an agent of an independent status to whom paragraph 7 applies . This UN Model provision leading to a permanent establishment for insurance companies collecting premiums in a state is present in 137 of the DTAAs out of the about 800 DTAAs in existence. 69. Although approximately 15 German DTAAs contain special articles for insurance, PEs similar to Article 5 Para 7 of the UN model, there is little juridical or administrative guidance for it. Pursuant to Circular No. 4(2)(1) on PE and also according to the interpretations of the German tax administration, a branch of a non resident insurance company (according to the German Insurance Supervisory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment years 2003-04 to 2013-14 are given in Annexure 12 (page 20) 75. The assessee further submits that there exists reciprocity between the Indian insurer acting as a reinsurer to the foreign reinsurer in many of the countries and the magnitude of local retention is approved by the IRDA/Government. The question of deduction of tax otherwise does not arise on this account in terms of the Circular No. 38 (xooiii-7), F.No. Sl(S)IT/54 dated 3 October 1956 reproduced hereinunder: Insurance Companies-Foreign insurance companies doing re-insurance business in India -Liability to Indian income tax- The Central Board of Revenue recently reviewed the position regarding the taxability of foreign Company on its profit of re-insurance- with companies in India. It was decided that no uniform principle could be laid down which would be applicable in all cases of re-insurance. Whether there be cases in which each single risk is offered separately by the ceding company (i.e. the insurer) to the accepting company or companies (i.e. the re-insurer) or they be cases in which re-insurance is affected in accordance with a standing agreement. Liability to tax or freedom therefrom of the foreign re-ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recourse against any reinsurer in the event of the default of the insurer. In fact, most of the time, the insured may not be aware of the existence of reinsurance as the contract of reinsurance is between the insurer and the reinsurer and the insured is not privy to the contract. Reinsurance transactions are done in following 2 ways; (a) Direct Writers - directly with Reinsurance companies situated throughout the world; (b) Through Brokers - brokers act as a conduit pipe in arranging reinsurance between the primary insurers and reinsurers; Reinsurance is done in different methods and ways depending upon the nature of the risk or portfolio of the risk to be reinsured. In India, the IRDA Regulation requires an insurance company to finalize and file with them the reinsurance programme for the next financial year 45 days before the beginning of that FY. In the present case the Assessee has 3 category of Re-Insurance premium paid (i) NRR's Where DTAA exist (ii) NRR's where DTAA does not exist (iii) Direct Indian 1. With reference to the Long Term Reinsurance Business, the period of cover of insurance is more than a year. For example, if a client insures his business for five yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Section 5(2) is sufficient to create a charge in respect of non-residents income. Reliance is placed on the decision of Hon'ble MR in the case of Mushtaq Ahmed [176 Taxman 65]. 7. It is also notable that, the above payment of reinsurance premium by the assessee to the non-resident reinsurers without deduction of TDS u/s 195 of the Act shall be taxable in the hands of the Indian insurers based on the decision of Hon'ble Supreme Court in the case of Kanchanganga Sea Foods Limited (325 ITR 540) The facts of the above said case of the Honorable Supreme Court is being compared with the present case as under: Sl No Rule of the Supreme Court in the case of Kanchanganga Sea Food Limited Facts of the assessee's case 1 A plain reading of the provisions of the Indian Income Tax Act makes it clear that for a non-resident income from whatever source derived as taxable in India, if it is received in India. In the instant case, the reinsurance premium has arisen and accrued for the non-resident only in India. The same has been elaborates discussed in the earlier paragraph of this order. 2 The facts of the case is chartered facilities together with the entire catch of the fish were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not having done so, it was rightly assessed as an assessee in default. Since the transaction was taxable under law, the tax payer was liable to withhold tax as per the provision of Indian Income Tax Law and not having done so, the same has to be disallowed u/ s 40(a)(i) of the Act. Therefore, it is clear that under the provisions of the Income Tax Act, 1961, receipt of income in India attracts tax, irrespective of whether the Income accrued or arose in India or outside India. The present Honorable SC ruling provides guidance on taxability of income received in India by a non-resident. 8. The Honorable SC reiterates that income is received at a place where the recipient first controls it. In the facts of the present case, the nonresident reinsurer was held to have gained control over specific percentage of insurance premium only when it was apportioned by the Indian insurer (Assessee Company) in India port as per the IRDA regulations and based on the agreement entered with the NR reinsurer. Based on the above facts, it is clear that irrespective of whether the income accrued or arose in India or outside India, the receipt of such income is taxable in India as per the provisions of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the payments to non-residents. Nor they filed the prescribed undertaking along with the certificate from an accountant while making the remittance. In the above circumstances, the entire payment to Non-resident insurers in the form of reinsurance fee for which the TDS has not been made will be disallowed as per Section 40(a)(i) of Income Tax Act. 10. We have heard both the parties, perused material available on record and gone through orders of the authorities below. The assessee is an insurance company engaged in the business in General insurance in terms of IRDAI regulations and Insurance Act, 1938. The business of the assessee is regulated by IRDAI through various regulations. All the insurance companies which are carrying on insurance business in India have to necessarily comply with provisions of the Insurance Act, 1938 as amended and rules there under. The contract of insurance and contract of reinsurance are two separate and distinct contracts. The reinsurance contract is completely independent of contract of insurance between insured and insurer. The term reinsurance was not defined under the Insurance Act, 1938 until 2015. However, by Insurance Laws (Amendment) Act, 2015 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee; iii) Whether the CIT(A) was justified in restricting claim of the assessee to 15% instead of confirming order passed by the Assessing Officer. The Hon'ble High Court of Madras also observed that the Tribunal shall decide above questions alone and nothing more and decision shall be taken based on the available material and the assessee the Revenue are not entitled to place any fresh materials before the Tribunal so as to enable the Tribunal to take decision. Therefore, from the above, it is very clear that controversy with regard noncompliance with provisions of Insurance Act, 1938 and regulations made there under by the IRDAI is put to rest by the Hon'ble High Court and the Tribunal does not have power to examine legality or otherwise of payment made by the assessee to non-resident reinsurance companies. Therefore, issue on hand should be decided only in the context of payment made by the assessee to NRRI in light of provisions of Income Tax Act, 1961, and relevant DTAA between India and other contracting States. 11. The Assessing Officer has disallowed reinsurance premium ceded to non-residents on the sole premise of non-deduction of tax at source u/s. 195 of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned counsel for the assessee as well as ld. Sr. standing counsel for the department and we ourselves do not subscribe to the reasons given by the Assessing Officer for simple reason that provisions of section 195 of the Act will be applicable only in a case where income is actually chargeable to tax in India. In order that there is obligation to deduct TDS, the revenue must establish that income was chargeable to tax in India both in terms of Act as well as in terms of relevant DTAA. If the recipients are non-residents, income was chargeable u/s. 5 r.w.s. 9(1) of the Act, only if income is received or deemed to have been received or income accrues or is deemed to accrue in India. Further, wherever DTAA applies, income chargeable to tax has to be additionally considered under terms of relevant DTAA. In the present case, reinsurance premium ceded to non-resident reinsurers is not chargeable to tax in India under the Income Tax Act, 1961, because income is not received in India, which is evident from fact that except for payment to Indian brokers in few cases, all other payments of reinsurance premium to NRRI have been paid outside India to non-resident brokers or NRRI bank acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here it was observed that contract signed in India is of no material consequence, since all activities in connection with off shore supply were outside India and therefore, cannot be deemed to have accrued or arose in India. Further, income may accrue not at place where asset or property is located or where insurer is resident, but where risk is borne. In the present case, the risk is borne where the non-resident reinsurer resides or where he has funds to make good loss. Therefore, insurance premium cannot be said to accrue in India. 13. We, further, noted that income of NRRI are not deemed to accrue or arise in India, because reinsurance premium ceded to non-resident foreign insurers are raising in India only where the same arises out of business connection in India and even if, exists business connection, the business operations are carried out in India. In the present case, nor do foreign insurers have any fixed place of business in India, neither do they carry on any business operations in India. The term business connection is defined in Explanation (2) below section 9(1)(i) of the Act. None of the conditions that are required to be fulfilled before existence of business conne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction in India in any form whatsoever, irrespective of fact whether reinsurance payments are made directly or through resident brokers or non-resident brokers. The NRR being non-resident reinsurance company is expressly prohibited to carry on business in India under the Insurance Act, 1938. Therefore, NRR cannot be said to have any business in India. The reinsurance arrangements between Indian insurer and NRRI are on principal to principal basis and in such scenario; there is no question of any business connection in India. Although, the Assessing Officer observed that place of signing of agreement is material to decide business connection, but it was categorically held by the Hon'ble Supreme Court in the case of Ishikawajima Harima Heavy Industries Ltd. Vs. DIT, 288 ITR 408 (SC) that contract signed in India is of no material consequence. In the present case, signing of reinsurance treaty is either in India or outside India cannot be a ground that income has deemed to accrue or arise in India. 15. Let us now come to chargeability of reinsurance premium ceded to NRRI under DTAA. It is an admitted fact that provisions of Act or provisions of DTAA, whichever is more favorable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red view there is not fixed place of PE of NRRs. 16. The Assessing Officer alleged that there is agency PE of NRRI in India on the basis of availing services of reinsurance brokers. During the subject assessment years, the assessee has remitted reinsurance premium through non-resident brokers outside India. In order to attract agency PE, the Revenue has to establish that person act on behalf of NRRI in India and such person is economically and legally dependent on the NRRI. In the present case, reinsurance brokers act in their independent capacity and they are not dependent agency of the assessee as well as non-resident insurers. They do not conclude any contract for NRRI and thus, we are of the considered view that there cannot be said to constitute business connection for agency PE for foreign reinsurers in India. The Revenue has also not placed any material on record to demonstrate that reinsurance brokers constitute agency PE for NRRI under DTAA. Therefore, in our considered view, foreign reinsurers do not have PE or business connection in India under relevant DTAA or the I.T. Act, 1961. Therefore, payments are not chargeable to tax in India and are not liable to deduct tax at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o section Section 9(1)(i) of the Act are not satisfied, therefore, the NRRI does not have any business connection in India. (c) Reinsurance is specifically excluded from the ambit of PE in India-Switzerland DTAA, therefore, there is no PE in India. (d) The services rendered by the subsidiary of NRRI does not constitute a Service PE or Agency PE of the NRRI in India. Thus, the Tribunal held that the reinsurance premium received by the NRRI from Indian reinsurer is not taxable in India both under the Act and the DTAA. (ii) DCIT ICICI Lombard General Insurance Co. Ltd. - ITA No. 2769 Mum, 2011 dt. 30/08/20133 Summary : :In the case of the Indian insurer (ICICI Lombard General Insurance Co. Ltd) the AO disallowed a sum of Rs. 5.84 crores paid to the NRRI in respect of reinsurance premium as no tax was deducted under section 195 and the same could not be considered as business expenditure. The CIT(A) held that the payment made to the NRRI was not taxable in India. On appeal by the Revenue, the Mumbai Tribunal, confirmed the order of the CIT(A) and held that the NRRI did not have any PE in India and, therefore, the reinsurance premium was not taxable in India. (iii) ICICI Lombard General ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ish that the foreign company has a business connection or PE in India. (b) Subsidiary of a foreign company would not be conclusive to say that there exists a PE in India. (c) Activities of Liaison Office which are in nature of preparatory and auxiliary cannot be construed to be the existence of business connection in India within the meaning of section 9(1)(i) or PE under the DTAA. (d) The Tribunal rejected the argument of the AO that there is business connection on account of regular and continuous activity. (e) Activities of subsidiary which are merely in nature of support services do not constitute PE of the NRRI. It also found that the subsidiary had no authority to conclude contract or settle claims on its own or on behalf of the NRRI. (f) The Tribunal also found that in reinsurance arrangements the privity of contract is between the Indian Insurer and the NRRI (g) The Tribunal also held that the manner and mode of carrying on of the transaction is not the proper test to determine whether there exists a fixed place of business or not. (h) The Tribunal concurred with views expressed by coordinate benches in the case of Swiss Reinsurance Co. Ltd., Bajaj Allianz General Insurance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 6837 6832/Mum/2014 for A.Y. 2005-06 and 2009-10 vide order dated 04/10/2016 had adjudicated the very same issue in respect of payments made to M/s. Odyssey America Reinsurance Corporation, Singapore for providing reinsurance business, without deduction of tax at source and applicability of provisions of Section 40(a)(i) of the Act. We find that the Tribunal in the aforesaid case placed reliance in assessee s own case for A.Y. 2004-05 reported in 152 ITD 855 and also in yet another case rendered in the context of revision proceedings u/s. 263 of the Act in ITA No. 5777/Mum/2011, had quashed the revision proceedings u/s. 263 of the Act by observing as under:- 2.3. Thus, the Tribunal by the aforesaid order held that invocation of revisional jurisdiction was not valid. In view of this uncontroverted factual matrix, the appeal of the Revenue is dismissed as infructuous. 3.18. We further find that the Co-ordinate Bench of this Tribunal in the case of General Reinsurance AG, General Reinsurance AG India Branch vs. DCIT in ITA No. 7433/Mum/2018 for A.Y. 2015-16 dated 14/06/2019 had an occasion to address the same issue from the perspective of the recipient foreign company. In the said Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case as to whether such an onus has been discharged by the Revenue or not. 3.17. Let us now examine the applicability of provisions of Section 40(a)(i) of the Act in respect of reinsurance premium paid to foreign reinsurers. We find that the ld. CIT(A) had placed reliance on the decision of Chennai Tribunal in the case of Cholamandalam MS General Insurance Co. Ltd to drive home the point that the said payment shall be liable for deduction of tax at source in terms of Section 40(a)(i) of the Act. We find that though the Hon'ble Madras High Court in para 26 had held that Chennai Tribunal decision in confirming the action of the ld. AO in invoking provisions of Section 40(a)(i) of the Income Tax Act was not supported with any reasons, finally in para 28, the Hon'ble Madras High Court had remanded this question to the Tribunal to decide whether the ld. AO was right in disallowing the reinsurance premium u/s. 40(a)(i) of the Act. Hence, that question needs to be decided by the Tribunal. Accordingly, the issue of applicability of provisions of section 40(a)(i) of the Act is adjudicated by us independently. We find that the Co-ordinate Bench of this Mumbai Tribunal in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee is also not in dispute. But to recapitulate, we may note that the appellant is a global re-insurance company which has entered into re-insurance contracts with various Indian insurance companies. For underwriting the risks of the Indian insurance companies, assessee earns reinsurance premiums, which is the subject-matter of dispute before us. So far as the nature of receipts in question is concerned, there is a convergence between the assessee and the Revenue that the same are in the nature of business receipts. It is quite well understood that in such like cases where the foreign company earns business income, the same can be taxed in India only if it has a PE in India or 'business connection' so as to fall within the scope of Indian tax laws. At the outset, it has been asserted by the appellant before us that in such situations, the onus is on the Revenue to establish that the foreign company has a 'business connection' or a PE in India so as to invite any tax liability under the Indian tax laws. Ostensibly, the aforesaid is supported by the judgment of the Hon'ble Supreme Court in the case of E funds IT Solution Inc vs ADIT, (2017) 86 taxmann.com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pproval granted by IRDA. 18. We may now address the point as to whether the operations of the Indian subsidiary, which have indeed been carried out from India, can be construed as enabling invoking of 'business connection' of the assessee as envisaged under Section 9(1)(i) of the Act or whether the Indian subsidiary constitutes a PE of assessee in India. Article 5(1) of the India- Germany Tax Treaty provides that PE means a fixed place of business through which the business or enterprise is wholly or partially carried on. On this aspect, the case set-up by the Revenue is that the key functions of reinsurance business, namely, actuarial services and underwriting services are provided by the Indian subsidiary. Such discussion is contained in paras 9.7.2 to 9.8 of the final order of the Assessing Officer. On this aspect, we have carefully examined the contentions put forth by the Revenue as well as the material on record, namely, the Master Service Agreement and the Addendum to the Master Service agreement between assessee and the Indian subsidiary and find that the approach of the Assessing Officer is quite misdirected. In fact, the services that have been provided by the Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of business in India or not. Factually or legally speaking, the place of business of Indian subsidiary per-se can in no way be equated to mean the fixed place of business of the assessee in India. In fact, in this connection, the observations of the Hon'ble Supreme Court in the case of E funds IT Solution Inc (supra) are very apt. In para 12 of its order, the Hon'ble Supreme Court has dealt with in detail, by making reference to the findings of the Hon'ble High Court, and concluded that there was no fixed place PE of the assessee before it on the facts of the case before it.One of the points noted by the Hon'ble High Court was that the foreign company was dependent on the Indian subsidiary for earning its income. This aspect was specifically negated and held not to be a relevant criteria to determine whether there existed a fixed place PE or not. Similarly, the manner and mode of carrying on of transaction was also not found to be a proper test to determine as to whether there existed a fixed place of business or not. Taking a cue from the reasoning approved by the Hon'ble Supreme Court, in the present case too, the mere rendering of support services in conne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... somewhat similar situations, foreign companies engaged in reinsurance business have not been found to be having a fixed PE or an agency PE in India in the form of an Indian subsidiary. (ii) In this context, reference has been invited to the decision of the Mumbai Bench of the Tribunal in the case of Swiss reInsurance Co. Ltd. vs DDIT(IT), [2015] 55 taxmann.com 520 (Mumbai - Trib.), which according to the learned representative, is directly on the point. We have perused the said decision and find that the factual matrix which prevails in the instant case before us is similar to what has been considered in the case of Swiss re-Insurance Co. Ltd. (supra). In para 2.1 of the order, the relevant facts have been noted and the discussion reveals that the facts before us are quite similar to the case before our co-ordinate Bench. It was the case of a reinsurance company based in Switzerland which was receiving income for providing reinsurance to various insurance companies in India. Swiss re-Insurance company had a wholly owned subsidiary in India which was rendering administrative, market intelligence and other risk assessment services, which is quite similar to the services being render ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e stand of the assessee. As a consequence, so far as Ground of appeal nos. 1 to 4 are concerned, the same are treated as allowed. 3.19. Similar view was taken by the Co-ordinate Bench of Pune Tribunal in the case of Bajaj Alliance General Insurance Co. Ltd. ,vs. DCIT in ITA No. 2560/PN/2012 for A.Y. 2008-09 dated 03/02/2016 vide paras 2643. For the sake of brevity, the relevant operative portion of that Pune Tribunal order is not reproduced herein. 3.20. It is a fact that in the impugned case of the assessee before us, i.e. Tata AIG Insurance, it is not in dispute that foreign reinsurer does not have any place of business or branch or any business connection or permanent establishment in India. Hence, the payments made by the assessee company to the said foreign insurer is not chargeable to tax in India in the hands of the foreign reinsurer in terms of Section 195(1) of the Income Tax Act. Hence, there is no obligation on the part of the assessee payer to deduct tax at source thereon. Reliance in this regard is placed on the decision of the Hon'ble Supreme Court in the case of GE India Technology Centre Pvt. Ltd., vs CIT reported in 327 ITR 456. Accordingly, the provisions of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insurer. Moreover, the ld. CIT(A) accepts the existence of independent brokers involved and if it is so, it cannot constitute a PE. 3.24. Hence, the entire observations of the lower authorities had been duly addressed in the aforesaid findings by us. At the cost of repetition, we would like to reiterate the fact that there is absolutely no dispute that the foreign reinsurers does not have any place of business in India / permanent establishment in India / branch established in India / Liaison office in India. Hence, any payment made by the assessee company to such foreign insurers would not be chargeable to tax in the hands of the foreign reinsurers in India in terms of Section 195(1) of the Act. Accordingly, as stated earlier, there would be no obligation on the part of the assessee, being a payer, to deduct tax at source and consequently there cannot be any disallowance u/s. 40(a)(i) of the Act. Accordingly, assessee succeeds on this ground also. 18. Insofar as case laws relied upon by the learned CIT(A), of the Hon ble Bombay High Court in case of Vodafone International Holdings (329 ITR 126), in upholding action of the AO of subjecting reinsurance premium to tax in India, we fi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
